2017 ANNUAL SHAREHOLDERS MEETING

Transcription

1 2017 ANNUAL SHAREHOLDERS MEETING W.T.B. Financial Corporation Our Mission We will be the best at understanding and meeting the financial needs of our customers. We will focus our unique strengths as a community bank on serving those customers who perceive a distinct value in building long-term relationships with us. We will be empowered to act on behalf of Washington Trust to meet our customers' needs and will have the competencies to fulfill this mission. We will conduct ourselves in accordance with our guiding principles. We will organize and manage to best support one another in these efforts and to ensure the long-term viability of the Bank.

2 FORWARD LOOKING STATEMENTS This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of Forward looking statements can be identified by words such as anticipates, intends, plans, seeks, believes, estimates, expects and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make regarding our evaluation of macro-environment risks, Federal Reserve rate management, and trends reflecting things such a regulatory capital standards and adequacy. Forward looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forwardlooking statements. They are neither statements of historical fact or guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statement include: the ability to attract new deposits and loans; demand for financial services in our market areas; competitive market pricing factors; deterioration in economic conditions that could result in increased loan losses; actions by competitors and other market participants that could have an adverse impact on our expected performance; risks associated with concentrations in real estate related loans; market interest rate volatility; stability of funding sources and continued availability of borrowings; risk associated with potential cyber threats; changes in legal or regulatory requirements or the results of regulatory examinations that could restrict growth; the ability to recruit and retain key management and staff; the ability to raise capital or incur debt on reasonable terms; effectiveness of legislation and regulatory efforts to help the U.S. and global financial markets. There are many factors that could cause actual results to differ materially from those contemplated by forward-looking statements. Any forward-looking statement made by us in this presentation speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publically update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

3 COMPANY OVERVIEW W.T.B. FINANCIAL CORPORATION Demographics History Diversified Geography Relationship Banking Business Model W.T.B. Financial Corporation is the parent company Washington Trust Bank is the primary subsidiary Shares listed on the OTC Pink Marketplace: markets.com WTBFA -- Class A shares WTBFB -- Class B shares Over 100 years of banking history in the Pacific Northwest 1983: $500 million in assets 1994: $1 billion in assets 2016: $5.7 billion in assets Headquarters is Spokane, Washington Operates across 3 states (WA, OR and ID) Historical markets: Spokane, Northern Idaho and Central Washington Growth markets: Puget Sound, Portland and Boise Community bank serving people, businesses and community organizations Conservative and disciplined bankers Relationship banking/organic growth orientation Commercial, private and retail banking divisions Wealth management division, including trust powers 3

4 CORE IDENTITY AND BUSINESS MODEL 4 Pacific Northwest community bank Over 100 years of heritage 4th generation Chairman of the Board and CEO Relationship banking High value customer relationships Organic customer growth Broad product line and customer base Commercial banking customer focus Retail and private banking clients Wealth management expands service lines Private ownership and family heritage Conservative risk profile Balance sheet strength Capital management discipline Risk adjusted performance Long-term franchise and shareholder value

5 BUSINESS MODEL Relationship banking requires A high degree of customer focus High caliber professional bankers Empowered employees Decentralized decision-making First-rate financial solutions Customized to meet client needs Standardized to be efficient and scalable Customers that value their relationship with us Relationship banking is Valued by our customers Career enhancing for our employees A high value business model for our shareholders Efficient and focused path for growth More challenging, but more durable A model that preserves company culture 5

6 2016 PERFORMANCE OVERVIEW Balance Sheet 2016 FINANCIAL POSITION AND PERFORMANCE Deposit growth of $383 million, or 8.4% drove strong asset growth Assets finished the year at $5.7 billion, up 6.9%, or $364 million Loans grew $228 million, or 6.4% to $3.8 billion Common shareholders' equity increased $32 million, or 6.9% Earnings and Shareholder Value 2016 Performance Risk Profile Earnings increased $5.4 million, or 11.6% to $51.7 million Net interest revenue grew $17.8 million, or 10.8% to $181.6 million Diluted earnings per share increased $2.28, or 12.7% to $20.29 Book value per share increased $12.87, or 7.1% to $ Net interest margin widened by 11 bps to 3.53% Return on assets increased 4 bps to 0.98% Return on shareholders' equity increased 41 bps to 10.53% Common shareholder dividends increased $0.28 per share, or 10.3% to $3.00 Capital exceeds regulatory minimums and internal targets Asset quality is high with historically low non-performing assets Allowance position remains substantial at $86 million, or 2.27% of loans Liquidity levels are elevated with a Liquidity Ratio of 27.2% 6

7 MAJOR INDUSTRY THEMES 7 Credit recovery from financial crisis is complete Industry NPA s to assets < 1.00% (peaked at 3.45% in 2010) Number of problem institutions = 123 (recent peak of 884 in 2010) Industry ALLL to loans = 1.30% (WTB = 2.27%) Low rate environment weighs on profitability Industry NIM 3.13% in 2016 (recent peak of 4.06% in 2002) Industry Return on Assets = 1.04% (recent peak of 1.34% in 2006) Regulatory burden a challenge and opportunity Compliance burden falls equally across community banks Costs are real in terms of headcount, systems and time We have scale, expertise and commitment to meet responsibilities Industry consolidation accelerates Down 4%, or 300 banks +/- per year ( ) Down 2,600 banks since financial crisis to 5,900 FinTech revolution reshaping banking Disrupters Strategic partners Source for industry performance: FDIC website

8 2016 INDUSTRY PERFORMANCE Industry Earnings: Industry earnings = $171 billion, up $8 billion, or 4.9% Net interest revenue increased 6.9% on growth and wider margins Provision for loan loss expense increased $11 billion, or 28.8% Industry Balance Sheet: Deposits = $12.9 trillion, up $705 billion, or 5.8% Assets = $16.8 trillion, up $813 billion, or 5.1% Loans = $9.3 trillion, up $466 billion, or 5.3% Equity = $1.9 trillion, up $69 billion, or 3.9% 8 Industry Performance and Risk Metrics: Noncurrent loans + OREO to assets = 0.86% (peak of 3.45% in 2010) Loan loss allowance = $121 billion, or 1.30% of loans Down from a recent peak of 3.51% in 2010 Net Interest Margin = 3.13%, up 6 bps Return on assets = 1.04%, no change YoY Return on equity = 9.32%, up 3 bps Source for industry performance: FDIC website

9 INDUSTRY CONSOLIDATION CONTINUES 17,886 Number of FDIC Insitutions The number of FDIC insured institutions has declined by nearly 12,000, or 67% to 5,913 since ,913 $16,780, Total Industry Assets (000's) while assets have quadrupled to almost $17 trillion for a CAGR of 5.1% $3,374,121 Source: FDIC website as of 4/15/

10 IMPACTING THE SMALLEST BANKS 18,000 16,000 14,000 12,000 10,000 Number of Institutions by Asset Size All of the consolidation in the industry has come from the smallest banks Banks with assets < $100 million declined by over 12,000, or 89% since 1984 while banks with assets from $1 billion to $10 billion have grown 46% to 621 8,000 6,000 4,000 2, Assets > $10 Billion Assets $1 Billion - $10 Billion Assets $100 Million - $1 Billion Assets < $100 Million Source: FDIC website as of 4/15/

11 PROBLEM BANK LEVELS NORMALIZED Source: FDIC website as of 4/17/

12 INDUSTRY ASSET QUALITY NORMALIZED 4.00% Industry Noncurrent Assets and OREO to Assets 3.50% 3.48% Problem assets peak for the industry in % 3.00% 2.50% 2.00% 1.50% 1.00% Average NPA s to Assets = 0.73% (1995 to 2007) 0.86% 0.50% 0.47% 0.00% Source: FDIC website as of 4/17/

13 BUT PROFITABILITY HASN T YET 1.50% Historical (1984 to 2016) Industry Return on Assets (Q) 1.39% 0.00% Average ROA of 1.20% (1993 to 2006) 1.04% Average ROA of 1.03% (2012 to 2016) -1.10% -1.10% -1.50% Source: FDIC Quarterly Bank Performance Data as of Fourth Quarter

14 UNTIL RATES NORMALIZE 10.00% 9.08% 10-Year UST Treasury Rates (1990 to 2016) 8.03% 7.50% 6.75% 5.00% 5.23% 5.58% 5.23% 4.24% 3.98% 2.50% 3.13% 2.45% 2.13% 1.43% 1.37% 0.00% 14 Source: United States Treasury website as of 4/10/2017

15 INDUSTRY PERFORMANCE COMPARISON COMPARATIVE METRIC: Washington Trust Bank Banking Industry FDIC DATA FINANCIAL PERFORMANCE Actual 4-Quarter Average Net Interest Margin (NIR/Earning Assets) Operating Expenses to Assets Efficiency Ratio (Expenses/Revenues) Return on Assets (Earnings/Assets) Return on Equity (Earnings/Equity) 3.55% 2.80% 63.8% 0.99% 10.78% $1 to $10 Billion in Assets 3.13% 3.60% 2.57% 2.84% 58.3% 61.5% 1.04% 1.05% 9.32% 8.97% Comments Comparable metrics Superior performance ASSET QUALITY METRICS Actual Period End Average Noncurrent Loans and OREO to Assets 0.27% 0.86% 0.82% ALLL to Total Loans 2.27% 1.30% 1.16% ALLL to Noncurrent Loans 598% 92% 121% Superior asset quality Superior loss reserve position CAPITAL Actual Period End Average Equity to Assets 8.60% 11.11% 11.58% Includes intangible assets Tier 1 Leverage Ratio (minimum = 5.00%) Tier 1 Risk Based Capital (minimum = 8.00%) 9.43% 11.71% 9.48% 12.96% 10.46% 13.50% Excludes intangible assets Total Risk Based Capital (minimum =10.00%) 12.97% 14.35% 14.50% Source: FDIC Website; QBP Time Series Spreadsheets Download Date: 4/15/

16 FINTECH REVOLUTION WELL UNDERWAY 16

17 FOCUS ON WTBFC COMPANY 2016 PERFORMANCE IN PERSPECTIVE 17

18 ASSETS AND CAPITAL Total Assets (in thousands) $5,305,000 $4,772,000 $4,470,000 $4,436,000 $5,669,000 Assets increased $1.5 billion, or 36% over past five years Common equity to assets grew 49 bps to 8.75% since 2012 Common shareholders equity increased $155 million, or 45% over past five years Capital quality is high with all common equity and no intangibles Equity to Assets 10.25% 9.88% 9.25% 8.75% 8.75% 8.87% 8.84% 8.75% 8.75% 8.26% Shareholders' Equity (in thousands) $458,271 $496,286 $438,069 $441,598 $464,407 $89,142 $44,571 $464,407 $496,286 $369,129 $393,498 $422, Shareholders' equity/assets Common shareholders' equity/assets Preferred shareholders' equity Total shareholders' equity

19 INVESTABLE CASH AND SECURITIES TRENDS $1,388 $1,360 SECURITIES AND INVESTABLE CASH (in millions) $1,601 $1,251 $439 $1,086 $344 $277 $1,711 $326 $1,385 $1,162 $809 $907 $ $110 Million $ Growth over the Past Year % 6.9% % Growth over the Past Year Securities Investable Cash 19 $1,360 $140 $1,220 AFS and HTM (in millions) $1,385 $1,162 $452 $809 $907 $482 $293 $430 $933 $516 $477 $ Available for sale Held to maturity Held to maturity ( HTM ) securities are carried at amortized cost Available for sale securities are carried at fair value The allocation of securities to HTM has increased over time HTM classification roughly aligns with collateral pledging needs

20 TOTAL DEPOSITS (in Millions) DEPOSIT TRENDS $3,790 $3,793 $4,083 $4,541 $4,924 $ $383 Million $ Growth over the Past Year % 8.4% % Growth over the Past Year Deposit Mix Noninterest Bearing Demand Savings and MMDA Interest Checking $811 $1,794 $2,029 Deposit Type $ (Millions) % of Total Noninterest Bearing Demand $ 2,029 41% Savings and MMDA 1,794 36% Interest Checking % Certificates of Deposit 290 6% Total Deposits $ 4, % Certificates of Deposit $290 20

21 LOAN TRENDS $2,897 TOTAL LOANS (in millions) $3,557 $3,351 $3,176 $3,785 $ $228 Million $ Growth over the Past Year % 6.4% % Growth over the Past Year Commercial Real Estate $1,233 Loan Type $ (Millions) % of Total Commercial & Industrial Residential Real Estate Construction and Development Agricultural Consumer Loans $640 $396 $203 $102 $1,183 Commercial Real Estate $ 1,233 33% Commercial & Industrial 1,183 31% Residential Real Estate % Construction and Development % Agricultural 203 5% Consumer Loans 102 3% Held for Sale 28 1% Total Loans $ 3, % Held for Sale $28 21

22 22 FOCUS ON CAPITAL Capital levels well above regulatory minimums Profitability trends sufficient to fund growth Capital ratio trends favorable Risk profile moderate Capital quality is high (zero intangible assets) Balance sheet strength considerable Share Repurchase July 2016 Opportunistic 15,000 shares at $200 per share Share Repurchase Program 2017 Announced 4/20/2017 $2 million authorized One year term Repurchases dependent upon market conditions, corporate considerations

23 CAPITAL TRENDS SHAREHOLDERS' EQUITY (in thousands) $458,271 $496,286 $464,407 $438,069 $441,598 $89,142 $44,571 Common Shareholders Equity $369,129 $393,498 $422,027 $464,407 $496,286 $ $32 Million $ Growth over the Past Year % 6.9% % Growth over the Past Year Common Shareholders' Equity SBLF Capital WTBFC Regulatory Capital Position (in thousands) WTBFC Regulatory Capital Ratios $255,083 $242,003 $174,828 $141, % 3.90% 3.16% 4.59% $278,010 $291,090 $358,265 $447, % 6.50% 8.00% 10.00% Leverage Capital Common Equity Tier 1 Risk Based Minimum Required ("WC") Tier 1 Risk Based Capital Total Risk Based Capital Unallocated Capital Leverage Capital Common Equity Tier 1 Risk Based Minimum Required ("WC") Tier 1 Risk Based Capital Total Risk Based Capital Unallocated Capital 23

24 ASSET QUALITY IS HIGH $50,000 $46, % In thousands 1.04% $36, % $29, % $18,782 $15,146 The Bank s asset quality is high with problem assets declining significantly to historically low levels $- 0.35% 0.27% 0.00% Nonaccrual loans and ORE Nonaccrual loans and ORE to assets 3.00% The Bank s allowance for loan loss position has grown and ALLL to loans is substantial, maintaining balance sheet strength In thousands 2.64% $76, % $82,427 $81, % $84,969 $85, % 2.27% $50, Allowance for Loan Losses ALLL to Loans 1.50% 24

25 WMAS AND TRUST: KEY BUSINESS LINE Wealth Management and Advisory Services, including Trust Powers $4.7 billion portfolio of assets Managed asset growth of $230 million, or 8.8% Total asset growth of $331 million, or 7.5% Fee income based business Recurring revenue stream Diversifies revenue base Off-balance sheet business line Capital neutral/capital efficient Profitability enhances ROA and ROE Competitive advantage for high value and affluent customers Long-term, relationship based business line 25

26 INCOME STATEMENT TRENDS Years Ended December 31, Income Statement (000's) $ Difference % Change Net interest revenue $ 163,801 $ 181,561 $ 17, % Provision for loan losses 2,667 2,250 (417) -15.6% Total noninterest revenue 48,857 48,541 (316) -0.6% Total noninterest expense 140, ,429 8, % Income taxes Net income 23,262 27,696 4, % $ 46,360 $ 51,727 $ 5, % Record $163,801 $181,561 Record $148,428 $140, $ in 000 s $48,857 $48,541 $46,360 $51,727 $23,262 $27,697 $2,667 $2,250 Net interest revenue Provision for loan losses Total noninterest revenue Total noninterest expense Income taxes Net income 26

27 WTBFC FINANCIAL PERFORMANCE METRICS For the Year Performance Metric Difference Return on average assets 0.94% 0.98% 0.04% Return on shareholders equity 10.12% 10.53% 0.41% Margin on average earning assets 3.42% 3.53% 0.11% Noninterest expense to average assets 2.83% 2.81% -0.02% Noninterest revenue to average assets 0.99% 0.92% -0.07% Efficiency ratio 65.6% 64.1% -1.50% Return on Assets Return on Average Total Equity 1.00% 0.92% 0.94% 0.98% 10.21% 9.14% 10.12% 10.53% 0.72% 6.79%

28 KEY SHAREHOLDER VALUE METRICS Years Ended December 31, Income (000's) and Per Share Data Net Income $ 46,360 $ 51,727 Preferred Stock Dividends Net Income Available to Common Shareholders $ 46,218 $ 51,727 $ Difference % Change $ 5, % (142) % $ 5, % Diluted Earnings per Common Share $ $ $ % Dividends per Common Share $ 2.72 $ 3.00 $ % Book Value per Common Share $ $ $ % $46,218 $51,727 $18.01 $ Net Income Available to Common Shareholders $2.72 $ Diluted Earnings per Common Share $ $ Dividends per Common Share Book Value per Common Share 28

29 WTBFB HISTORICAL RETURNS WTBFC Class B Common Stock Returns 1 Year Returns Valuation Valuation Change Method: YE 2015 YE 2016 Total $'s CAGR % Book Value $ $ $ % Market Close $ $ $ % 3 Year Returns Valuation Valuation Change Method: YE 2013 YE 2016 Total $'s CAGR % Book Value $ $ $ % Market Close $ $ $ % 5 Year Returns Valuation Valuation Change Method: YE 2011 YE 2016 Total $'s CAGR % Book Value $ $ $ % Market Close $ $ $ % Source: OTC Markets historical trading data ( 29

30 Q HIGHLIGHTS Earnings trends continued Net income $13.0 million, up $817,000, or 6.7% YoY Earning asset growth and wider margins key drivers Fed rate moves in December and March drive margin Credit performance remains high Capital levels substantial Equity to assets ratio increased 34 bps in Q1 to 9.09% Shareholder returns favorable Diluted EPS $5.10, up $0.36 per share, or 7.6% YoY Quarterly dividends per share $0.84, up $0.09, or 11.7% Book value per share $198.05, up $11.38, or 6.1% YoY 30

31 OUTLOOK ~ 2017 AND BEYOND Uneven economic recovery continues CB policies (Fed/Global) major force on capital markets Macro risks and market volatility remain a concern Our markets are providing opportunities Regulatory expectations elevated and expensive Uncertainty around rates IRR management prominent Banking industry remains highly competitive Competitive landscape evolves/consolidation continues Technology reshaping the industry Performance is largely loan growth/rate dependent WTBFC has capacity to serve/grow customers WTBFC positioned for future 31

32 KEY PRIORITIES Strength Maintain balance sheet strength and conservative risk profile Position for Fed policy shifts/macro events Adapt and evolve Shifting FinTech landscape Enhance the customer experience Excel on electronic/mobile delivery Discipline Stay true to relationship banking model Compete for high quality customers ~ teams ~ bankers Be opportunistic and grow our business Remain vigilant on cost structure, but still invest for future Performance Improve core earnings/financial performance Manage capital wisely and deliver shareholder value 32

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